The End of the Community Bank?

REGULATORY REFORM (from the ABA newsletter)
WSJ Op-Ed: Reform Bill's New Regs Could End Community Banking
The regulatory reform bill's new regulations, along with the regs issued in the past year, could signal the end of people-oriented community banking, ABA banker Sarah Wallace said in a Wall Street Journal opinion piece yesterday.

"Less credit will be available, costs will increase, and we will be less able to make loans to regular people who were creditworthy in the past. This is the perfect storm for the small retail banking customer," wrote Wallace, chair of the $200-asset First Federal Saving and Loan Association, Newark, Ohio.

Going forward, she said, First Federal will no longer be able to evaluate loan applications based solely on a borrower's creditworthiness. "We will be making regulation compliance decisions instead of credit decisions," Wallace said. "This is not in the best interest of the consumer."

She also explained that the reform bill will reduce interchange-fee income -- often used to offset electronic banking costs at small institutions -- an estimated 75 percent. "Institutions will be faced with one of two choices: Either increase fees on checking accounts and continue to offer electronic banking, or stop providing the service altogether," Wallace said.

She added that to comply with the slew of new regulations, the 55-employee First Federal will need a proportionately higher number of people -- rather than the current lone compliance specialist -- working daily to interpret and implement the new federal rules.

"This in itself, because of the sheer volume, has the potential to destroy community banking," Wallace said. Read the opinion piece in the Wall Street Journal.